Monthly Archives: July 2015

Here in Britain the progress has been palpable too. The Stalinist tyranny that was the National Health Service is being liberated from state control: the culmination, as my friend Eamonn Butler of the Adam Smith Institute has noted, of 20 years’ unrecognised labour. Those shirkers, the disabled, who claim that not being able to see or walk somehow exempts them from the obligation to look for work, are being systematically rooted out. Planning regulations have been ripped up so the countryside can finally be seen as the resource it so obviously is.

But there is hunger for more, I know.

Young and brave Conservative MPs such as Dominic Raab have had the guts to tell the truth. That the British people, pampered by a century of socialism, are a nation of idlers who would rather spend half the day in bed than do a decent day’s work. Statistics that show a quarter of Britons work more than 48 hours a week just demonstrate the indolence of the remaining three quarters who fail to reach even this minimal standard.

Catarina is a social activist from Portugal. She’s an organizer with Left Bloc in Portugal, Die Linke in Germany, which means The Left. She’s written for Jacobin magazine and contributed to an anthology titled Portugal, 40 Years After the Revolution. She’s currently studying and living in Germany.

Thanks for joining us.

So, as everybody knows that watches Reality Asserts Itself, we always start with sort of a personal back story and then get into some of the issues. And that’s what we’re going to do today.

So you’re born in Porto in Portugal.

PRÍNCIPE: Exactly.

JAY: And so in 1974 there is a revolution in Portugal. The Salazar dictatorship is overthrown. And that was a very big deal at that time, to have that kind of a breakthrough in Portugal.

You grow up sort of with that as–I should ask you the question: how much does that imbue who you are and the culture, atmosphere you grew up in, that you were living in revolutionary Portugal?

PRÍNCIPE: I wasn’t living properly in revolutionary Portugal anymore. The revolutionary process ended in ’75. But I think it is important to say that although the revolutionary process ended in ’75, the structures of the state and of the Portuguese democracy are much influenced by it. So we come from 50 years, almost, of fascist dictatorship, a very, very impoverished country, into a country with a functional social state, free education, free health system, a free health system, universal health system.

The EU today operates something like the US under the Articles of Confederation, which defined the US’s ineffectual governing structure after independence from Britain in 1781 but prior to the adoption of the Constitution in 1787. Like the newly independent US, the EU today lacks an empowered and effective executive branch capable of confronting the current economic crisis. Instead of robust executive leadership tempered by a strong democratic parliament, committees of national politicians run the show in Europe, in practice sidelining (often brazenly) the European Commission. It is precisely because national politicians attend to national politics, rather than Europe’s broader interests, that the truth about Greece’s debt went unspoken for so long.

This Greek Treuhand would be based in – wait for it – Luxembourg, and would be run by an outfit overseen by Germany’s finance minister, Wolfgang Schäuble, the author of the scheme. It would complete the fire sales within three years. But, whereas the work of the original Treuhand was accompanied by massive West German investment in infrastructure and large-scale social transfers to the East German population, the people of Greece would receive no corresponding benefit of any sort.

Euclid Tsakalotos, who succeeded me as Greece’s finance minister two weeks ago, did his best to ameliorate the worst aspects of the Greek Treuhand plan. He managed to have the fund domiciled in Athens, and he extracted from Greece’s creditors (the so-called troika of the European Commission, the European Central Bank, and the International Monetary Fund) the important concession that the sales could extend to 30 years, rather than a mere three. This was crucial, for it will permit the Greek state to hold undervalued assets until their price recovers from the current recession-induced lows.

Alas, the Greek Treuhand remains an abomination, and it should be a stigma on Europe’s conscience. Worse, it is a wasted opportunity.

One indicator of retirement behaviour that abstracts from more general factors

affecting the level of participation rates is the average effective age at which older workers withdraw from the labour force – for the sake of brevity, this will be referred to as the effective age of retirement. In most countries, the effective age of retirement is well below the official age for receiving a full old-age pension. Japan and Korea are notable exceptions where the effective age of retirement is close to 70 for men despite an official retirement age of 60. In other countries, men on average are still in the workforce at age 65 in Denmark, Iceland, Ireland, Portugal and Switzerland, but have left work by their 60th birthday in Austria, Belgium, France, Hungary, Luxembourg and the Slovak Republic. Women, in general, retire around one to two years earlier than men.

In the millions of words written about Europe’s debt crisis, Germany is typically cast as the responsible adult and Greece as the profligate child. Prudent Germany, the narrative goes, is loath to bail out freeloading Greece, which borrowed more than it could afford and now must suffer the consequences.

Would it surprise you to know that Europe’s taxpayers have provided as much financial support to Germany as they have to Greece? An examination of European money flows and central-bank balance sheets suggests this is so.

Let’s begin with the observation that irresponsible borrowers can’t exist without irresponsible lenders. Germany’s banks were Greece’s enablers. Thanks partly to lax regulation, German banks built up precarious exposures to Europe’s peripheral countries in the years before the crisis. By December 2009, according to the Bank for International Settlements, German banks had amassed claims of $704 billion on Greece, Ireland, Italy, Portugal and Spain, much more than the German banks’ aggregate capital. In other words, they lent more than they could afford.

When the European Union and the European Central Bank stepped in to bail out the struggling countries, they made it possible for German banks to bring their money home. As a result, they bailed out Germany’s banks as well as the taxpayers who might otherwise have had to support those banks if the loans weren’t repaid. Unlike much of the aid provided to Greece, the support to Germany’s banks happened automatically, as a function of the currency union’s structure.

HOW IT WORKED

Here’s how it worked. When German banks pulled money out of Greece, the other national central banks of the euro area collectively offset the outflow with loans to the Greek central bank. These loans appeared on the balance sheet of the Bundesbank, Germany’s central bank, as claims on the rest of the euro area. This mechanism, designed to keep the currency area’s accounts in balance, made it easier for the German banks to exit their positions.

Now for the tricky part: As opposed to the claims of the private banks, the Bundesbank’s claims were only partly the responsibility of Germany. If Greece reneged on its debt, the losses would be shared among all euro-area countries, according to their shareholding in the ECB. Germany’s stake would be about 28 percent. In short, over the last couple of years, much of the risk sitting on German banks’ balance sheets shifted to the taxpayers of the entire currency union.

It’s hard to quantify exactly how much Germany has benefited from its European bailout. One indicator would be the amount German banks pulled out of other euro-area countries since the crisis began. According to the BIS, they yanked $353 billion from December 2009 to the end of 2011 (the latest data available). Another would be the increase in the Bundesbank’s claims on other euro-area central banks. That amounts to 466 billion euros ($590 billion) from December 2009 through April 2012, though it would also reflect non-German depositors moving their money into German banks.

By comparison, Greece has received a total of about 340 billion euros in official loans to recapitalize its banks, replace fleeing capital, restructure its debts and help its government make ends meet. Only about 15 billion euros of that has come directly from Germany. The rest is all from the ECB, the EU and the International Monetary Fund.

BETTER PREPARED

Germany’s changing financial exposure has major implications for its role as a leader of Europe’s response to the crisis. Before Germany’s banks pulled back their funds, they stood to lose a ton of money if Greece left the euro. Now any losses will be shared with the taxpayers of the entire euro area — particularly France, whose banks still have a lot of outstanding loans to Greece. Perhaps this is what some German officials mean when they say that the euro area is better prepared for a Greek exit.

Ultimately, though, the cost of letting Greece go would come home to Germany. If bank runs and market turmoil forced Portugal, Spain, Italy and others out of the euro area as well, the losses could wipe out much of the capital of German banks. Not to mention the longer-term damage the euro breakup would do to the exports that drive Germany’s economy, and the potential demise of a European project designed to prevent a repeat of the horrors of two world wars.

To prevent such an outcome, with or without Greece, Germany will have to do everything it has so far refused, and more. This would include allowing the ECB to stand behind the debt of sovereigns. The euro area also needs a mechanism that would transfer money to economically troubled countries just as automatically as the region’s payment system bailed out Germany — an element economists have long said is crucial to making the euro area a workable currency union. As we have advocated, a joint unemployment insurance fund could be a first step toward such a fiscal union.

As German Chancellor Angela Merkel considers the next step in the euro crisis — one that could help the euro area return to growth or, alternatively, risk the survival of the entire currency union — she should keep in mind that her country is indebted to the euro system as much as Greece is.

The euro was built around the Bundesbank and therefore every monetary policy taken was more advantageous to Germany then to any other member state. Germany’s strength are exports and if it wasen’t for the rest of the euro area member’s imports, Germany would not be sitting in the high ground and patronising everyone. If all the countries would be exporters, I wonder who would import.

If Germany wants to keep its viability then it needs to help the other members.

There is a much deeper problem in the euro zone then simply lazy people as everyone likes to think. If it were so simple then only Greece would be in trouble.

In a recent article on the Greek crisis, I argued that a much bigger game was being played out in Europe over Greece – and the name of that game was deterrence. In plain English, make the terms of any deal with any rebellious, indebted, government in Europe so tough – almost unacceptable – that nobody in their right mind would ever dare challenge the status quo ever again. And while one is at it, make sure that everybody else understands that the terms of the agreement – like the one recently foisted on the Greeks – is seen for what it is: unconditional surrender.

For that is what the Greek Prime Minister recently did. Surrender. But all this, I would insist, has a purpose. As another commentator recently pointed out, the current agreement might be very hard on the Greeks. But as Jacob Wittgenstein of the Peterson Institute in Washington went on to point out, it will “ultimately result in it being harder for Syriza-like parties to be electable” in any other European country. In the longer term, “the political spill-over from Greece” will be “pro-centrist”. Spain and Italy may have been saved from the left.

Spending cuts in Greece caused a rise in male suicides, according to research that attempts to highlight the health costs of austerity. Echoing official statistics in the UK showing suicide rates are still higher than before the crisis, researchers at the University of Portsmouth have found a correlation between spending cuts and suicides in Greece.

According to the research, every 1% fall in government spending in Greece led to a 0.43% rise in suicides among men – after controlling for other characteristics that might lead to suicide, 551 men killed themselves “solely because of fiscal austerity” between 2009 and 2010, said the paper’s co-author Nikolaos Antonakakis.